TOWR released its 3Q24 result, which is in line with our projections
Headline revenue reached IDR3.3tn (+12.0% y-y / +6.0% q-q), bringing 9M24 revenue to IDR9.4tn (+8.4% y-y) — accounting for 75% of our full-year FY24F forecast. We note that IBST (unlisted) revenue contribution as well as TOWR’s non-tower business (FTTT, connectivity and FTTH) were the main drivers of revenue growth. 9M24 FTTT revenue reached IDR1.5tn (+18.2% y-y), while 9M24 connectivity revenue reached IDR1.2tn (13.7%), and 9M24 FTTH revenue reached IDR384bn (+369.4% y-y). Combined, FTTT, connectivity, and FTTH formed 33% of TOWR’s total 3Q24 revenue. We believe fiber will continue to be the company’s growth driver in the coming years, especially given that we believe Indonesian telecom companies are likely to expand their fiber tenancies for mobile broadband (4G/5G) and fixed broadband, in order to accommodate the growing demand for mobile and fixed broadband services. Operationally, the company has installed 258,135km of fiber (backbone, FTTT, connectivity, and FTTH [fiber to the home]). This is a sharp increase from merely 2,345km of fiber in 2018 (164,941km in 2022 and 213,463km in 2023).
At the EBITDA level, the company booked 3Q24 EBITDA of IDR2.8tn (+12.4% y-y/+8.7% q-q), which brings 9M24 EBITDA to IDR7.9tn (+7.1% y-y) or 74% of our FY24F projection. Implied margin improved to 85.4% in 3Q24 (from 83.3% in 2Q24). Adjusted funds from operations (AFFO) increased to IDR1,835bn (+14.4 y-y / +14.8% q-q).
Reported 3Q24 net profit of IDR842bn (-12.2% y-y / +4.2% q-q) brought 9M24 profit to IDR2.4tn (+0.9% y-y) which accounts for 74% of our FY24F net profit forecast. In 3Q24, TOWR had one-off costs (e.g. professional costs) related to IBST acquisition in addition to taking on additional debt to fund the acquisition. We believe that as IBST synergies materialize in the near term, bottom line for TOWR will only improve.
Other operational data show that TOWR has added new sites (organic and inorganic), bringing the total number of its sites to 35,371 (+18.2% y-y), with tenants now at 58,165 (+7.2% y-y). This implies a co-location (colo) ratio of 1.64x — down from 1.72x in 2Q24. The company also stated that its 3Q24 contracted revenue has reached IDR74.0tn (+9.3 % y-y), which implies around next six years of annualized revenue. This suggests limited earnings risks for the company, in our view. Post the results, we reiterate our positive call on the stock.
Valuation and risks
TOWR – Our DCF-based TP of IDR1,780 for TOWR assumes a risk-free rate of 6.2%, a discount rate of 7.4% and a terminal growth rate of 2.5%. We assign a WACC of 9.0% to reflect rising interest rates. At our TP, the stock would trade at 13.4x 2024F EV/EBITDA. Downside risks include adverse macroeconomic developments, irrational competition leading to lower rental rates, lower-than-projected tower renewal rental rates, slower organic growth, higher opex trends and/or co-los, and/or difficulties in securing new sites to accommodate telecom operators' network expansions as well as consolidation of cellular operators.
Fig. 1: TOWR quarterly results
P&L IDR mn
3Q2023
1Q2024
2Q2024
3Q2024
q-q
y-y
YTD 2024
YTD 2023
y-y
FY24F
vs FY24F
Revenues
2,943,101
3,046,551
3,107,324
3,295,166
6.0
12.0
9,449,041
8,719,379
8.4
12,675,503
75%
Towers
2,637,633
2,643,052
2,923,851
2,979,551
1.9
13.0
8,546,454
7,893,830
8.3
10,899,205
78%
Non-towers
305,468
403,499
183,473
315,615
72.0
3.3
902,587
825,549
9.3
1,776,298
51%
Tower only rev
2,637,633
2,643,052
2,923,851
2,979,551
1.9
13.0
8,546,454
7,893,830
8.3
10,899,205
78%
Operating Income
1,932,708
1,814,944
1,860,122
2,013,144
8.2
4.2
5,688,210
5,472,596
3.9
7,446,320
76%
Margin %
65.7%
59.6%
59.9%
61.1%
60.2%
62.8%
EBITDA
2,502,685
2,544,976
2,588,231
2,812,468
8.7
12.4
7,945,675
7,416,787
7.1
10,762,092
74%
Margin %
85.0%
83.5%
83.3%
85.4%
84.1%
85.1%
NP (loss)
958,403
797,389
808,073
841,775
4.2
(12.2)
2,447,237
2,425,574
0.9
3,302,192
74%
Net debt to equity x
2.7
2.4
2.4
2.6
Net debt IDRbn
43,601.6
41,770.5
40,926.3
48,358.4
Net debt to ebitda x
4.4
4.1
4.0
4.3
# of Tenants
54,249
54,170
54,326
58,165
7.1
7.2
# of sites
29,915
31,049
31,502
35,371
12.3
18.2
Co-Lo X
1.81
1.74
1.72
1.64
Ave leasing rate IDR mn
16.2
16.3
9.0
8.5
Contracted revenue IDR bn
67,671
71,420
69,264
73,970
6.8
9.3
AFFO IDR bn
1,604
1,626
1,598
1,835
14.8
14.4
Tax to rev %
7.7
6.7
8.2
4.9
EBITDA to int exp x
3.7
3.6
3.6
3.6
FFO
1,420,216
1,868,813
808,223
656,435
Source: Company data, Verdhana research
Fig. 2: Tower – revenue breakdown
3Q2023
1Q2024
2Q2024
3Q2024
Consolidated Rev
2,943,101
3,046,551
3,107,324
3,295,166
Tower Rev only
2,090,883
2,073,974
2,053,111
2,210,415
Others (VSAT/MWIFO)
852,218
972,577
1,054,213
1,084,751
Non-tower as % of total rev
29
32
34
33
Consolidated Op. profit
1,784,867
1,709,720
1,793,627
1,790,172
Tower Rev only
1,398,953
1,300,206
1,283,713
1,313,040
Others (VSAT/MWIFO)
385,914
409,514
509,914
477,132
Non-tower as % of total Op. profit
22
24
23
23
Consolidated profit
875,097
802,460
819,368
855,804
Tower Rev only
658,657
661,162
614,669
667,435
Others (VSAT/MWIFO)
216,440
141,298
204,699
188,369
Non-tower as % of total profit
24.7
17.6
25.0
22.0
3Q2023
1Q2024
2Q2024
3Q2024
FCF
431,523
1,868,813
2,499,583
(744,929)
Tower Rev only
356,085
1,989,415
3,663,022
(811,087)
Others (VSAT/MWIFO)
75,438
(120,602)
(1,163,439)
66,158
Assets
68,224,605
69,320,158
72,589,749
68,695,356
Tower Rev only
55,412,620
55,352,287
57,252,697
55,476,116
Others (VSAT/MWIFO)
12,811,985
13,967,871
15,347,052
13,219,240
Source: Company data, Verdhana research
Fig. 3: ROAA & operating margin
ROAA
3Q2023
1Q2024
2Q2024
3Q2024
Consol
5.2
4.7
4.6
4.8
Towers
4.8
4.8
4.4
4.7
Others
6.9
4.2
5.6
5.3
Operating Margins
3Q2023
1Q2024
2Q2024
3Q2024
Consol
60.6
56.1
57.7
54.3
Towers
66.9
62.7
62.5
59.4
Others
45.3
42.1
48.4
44.0
Source: Company data, Verdhana research
INVESTMENT RATINGS A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.
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